TORONTO - Ottawa will take a moderate approach to government cost-cutting in the budget instead of following in Europe's austerity-driven footsteps, Finance Minister Jim Flaherty said Thursday.

"I think Canadians should realize our context, this is not an austerity situation in Canada," Flaherty said when asked about his upcoming spending blueprint.

"We are not one of the countries, many of them in Europe, that have run up deficits for a long period of time, accumulated substantial debt and must really act dramatically — some of them in a draconian way in order to get their house in order again."

The federal government grew as part of the Conservatives' economic action plan during the global recession and "we will have to have some moderation of that," he added.

"As I say this is not austerity, this is not draconian, it will be moderate in its approach."

Flaherty's comments, which followed an unrelated announcement on cancer care, seemingly run counter to signals that he's preparing a painful, cost-slashing budget next month.

Government departments and agencies have been ordered to cut spending by up to 10 per cent, for savings of up to $8 billion annually.

One of the country's largest unions said the finance minister's message of moderation is "totally inconsistent" with earlier warnings about impending job losses.

"I think it's really difficult for anyone to believe what this government's saying now," said Patty Ducharme, executive vice-president of the Public Sector Alliance of Canada.

"Leading up to the election, they talked about (how) any job losses would be done through attrition, and then as soon as they were government, they were talking 10 per cent cuts with jobs and services being eliminated," she said.

Few details of the cuts have been made public and the opposition parties are calling on the Conservatives to come clean about their plans to curb costs.

"You never quite know what their political game is. Possibly they're trying to get everybody all frightened and thinking there'll be massive cuts, and then if they just have moderate cuts, everybody will breathe a sigh of relief," said Liberal treasury board critic John McCallum.

New Democrat MP Peggy Nash said Flaherty could balance the books without deep spending cuts by axing subsidies to the non-renewable energy sector and other fiscal measures.

"He should also not rule out corporate tax increases for sectors that are very profitable, stable and would remain competitive with a slightly higher tax-rate, such as our banks," she said in a statement.

Flaherty dismissed the need for corporate tax hikes to put federal and provincial governments on the road to fiscal balance. He said once governments get spending under control they don't have to raise taxes — and that's the direction he'll go in his budget.

The budget is also expected to issue a firm policy direction on old age security centred around raising the age when retirees can start to collect.

Several government sources have said the budget will lay out a path forward, rather than launch a national conversation or policy paper on proposed changes.

The leading option is to increase the age of eligibility from 67 from 65 — an option Prime Minister Stephen Harper has publicly confirmed is under consideration.

One possibility, vaguely referenced by Flaherty earlier this month and then retracted, is to start phasing in the increase in age in 2020, and make the change over five years.

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Old Age Security Facts

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Here are some facts about Old Age Security.
With files from The Canadian Press
(Alamy)

98 per cent of Canadians aged 65 or older, regardless of whether they are retired, and regardless of their pre-retirement income.

Maximum monthly benefits are $540.12, and average benefits are slightly more than $500. (CP)

OAS is considered taxable income. It is also clawed back for people earning more than $69,562 a year. Anyone making more than $112,772 has to pay it all back. (Getty)

For people aged 65 to 69, OAS makes up 13 per cent of their income, on average. (Alamy)

About a third of OAS recipients also get the Guaranteed Income Supplement top-up, targeted at low-income seniors. GIS is income tested. (Thinkstock)

The maximum benefit for someone collecting OAS and GIS is $1,240 per month. (Jupiter Images)